Argentina Must Shut Down SkyTeam Member Aerolineas Argentinas

Lucky at One Mile at a Time writes about the new President of Argentina’s plan to stop subsidizing Aerolineas Argentinas and calls it “an absolutely absurd plan” and “beyond ridiculous.”

President-elect Javier Milei says to stop the bleeding at the airline – it’s lost $8 billion of the government’s money since it was renationalized in 2008 – just transfer ownership to the unions.

Our idea is to hand it over to the employees and for them to do the purification themselves and begin to compete in an open skies policy. Airline personnel are very qualified personnel, the problem lies in political contamination.

The airline’s unions say that without government subsidies, the airline is doomed (“death certificate”) and they want continued handouts.

Lucky acknowledges that “Aerolineas Argentinas is such a bloated and inefficient company.” However argues that the problem is not enough subsidies (“The state has provided enough support to keep the airline alive, but not enough support to actually turn it around.”). He makes further excuses,

Furthermore, the airline has been dealing with many factors outside of its own control, like the massive inflation of the country’s currency, which makes it hard to run an international airline.

Aerolineas Argentinas has been a basket case for decades. Pulling the plug on inefficient state enterprises is part of how Argentina can get inflation and de-growth under control.

He concludes that Aerolineas Argentinas would fail under employee ownership (I’d add that United Airlines did, after all!), but that some of their capacity would likely be replaced. And that the airline should just be shut down – not given to the unions. But if that’s effectively the same thing, why blast the idea?

Let’s be clear about the situation in Argentina. They’re facing 140% inflation and 5% negative GDP growth. Their economy is actually shrinking. Poverty has grown eight-fold in a decade. Just 5% of people lived in poverty in Argentina ten years ago, now 40% do.

This is a country that saw its peak a century ago and has largely been in decline under authoritarian leaders since then.

That’s both why the people of Argentina have finally spoken up for something different, and why drastic policy changes are needed. Argentina can’t subsidize a long haul international airline.

  • He campaigned on reducing government spending by 15% and privatizing government-owned companies.
  • It’s a condition of the IMF, anyway, which has provided Argentina with twenty two bailouts.

Excessive government spending, combined with easy monetary policy financing that spending, is a key driver of inflation that the country must rein in. The idea that they can continue to subsidize Aerolineas Argentinas with billions of dollars is… absolutely absurd and beyond ridiculous.

However, while his election may represent the ‘burn it down’ impulse that’s been popular among many electorates worldwide over the past decade, Javier Milei’s policy proposals are largely the opposite of MAGA in the United States.

Now, there isn’t zero value in the airline. Aerolineas Argentinas flies 20% of the seat miles from Buenos Aires Ministro Pistarini International Airport (EZE) this month, according to Cirium scheduling data. They’re approximately 32% of seat miles from all Buenos Aires airports. In total 29 airlines offered scheduled flights out of Buenos Aires.

But the task for Argentina is to ensure that the country is attractive enough as a destination for business and tourism that airlines want to fly to the country, and can do so successfully. Obviously ‘handing the airline over to the unions’ which would run it for their own non-economic patronage is not the most likely way to turn around the airline. It’s akin to saying just shut it down.

Note that Milei also says this would be done with Open Skies. Does it matter if Aerolineas Argentinas goes under? Maybe it has to. But there are still planes, gates, and skilled airline workers and a country that’s growing will demand more air travel, not less.

It’s an off the cuff idea on how to overcome political opposition to cutting off funds for the backwards carrier when the new President has very little backing in the legislature. Milei may not be able to sell it even if he could find a buyer. And if economic reforms in the country went well, with reduced inflation and a return to growth, their position is one that could be turned profitable – or one that other operators would turn successful.

Too bad Spain vetoed American Airlines’ acquisition of Aerolineas Argentinas back in 1990.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Javier Milei is giving these unions exactly what they want. They always talk about owning the “means of production”.

  2. But the mainstream media said the new president is an evil far right wing hit ler. And Gary, everybody knows that inflation is caused by people making too much money, not from uncontrolled government spending.

  3. The last thing the unions want is ownership and skin in the game. Reference: United FAs / Allegis ESOP. With ownership comes responsibility, which is a harder gig than just issuing holdup demands.

  4. I went to Argentina in 1999 and the economy wasn’t great then. I loved the country and it was a cheap trip with 50 or so pesos to the dollar. Now it is 1000 pesos to the dollar on the black market (which almost everyone uses to trade currency there), inflation is almost 150% and 40% of the population is below the poverty line. Frankly you can go there now and get great “value” for your travel dollars but personally I would feel bad profiting from their economic problems while so many are suffering.

    I think they have a lot more to worry about than subsidizing a money losing airline. Hard choices are needed and this seems like an easy one. If the national airline goes away others in the market will step up to meet demand. Lucky is an av geek and is only focused on the impact on the airline but, as I said, that is way down the list of priorities if Argentina is to truly get their economy under control.

  5. Why anyone would take what “Lucky” (a miles hobyist) thinks on economics or company management seriously is beyond me. He is a vapid know-nothing.

    At least make a contribution to that guy’s medical expenses to get an operation to remove the fat in his head.

  6. I think that giving it to the unions is a great idea because unions always know how to run companies better.

  7. Interesting you took Lucky’s article, changed the reality, and then came up w/ your own conclusion that the government must shut down AR. Neither his article or what their new president elect supports that.
    The unions might shut AR down because they won’t be able to make the hard choices to cut costs – United is proof that unions left in charge of the means of production cannot balance those two goals and will always lean toward protecting jobs and salaries.
    AR has been a minimal player in Skyteam anyway. Argentina is not part of the DL/Latam JV, unlike most of the rest of S. America, which means that DL has to do what it wants to do in Argentina based on its own objectives. DL just started seasonal JFK-EZE and restarted (or soon will) ATL and JFK-GIG, the former of which will operate year run at least some days of the week, so further DL expansion in Argentina is possible, including from Miami if DL starts to build its own Latin presence from MIA to compliment Latam.
    AR’s biggest loss would not be in international markets but in the domestic marketplace which Latam Argentina tried unsuccessfully to do. If barriers are removed, multiple carriers can and will start domestic Argentina service and link it to their presence to/from Argentina.

    Argentina can look to Venezuela to see what happens if you don’t stop the bleeding and the people of Argentina have decided they can’t bear the pain of the presence trajectory any longer.

  8. I think Ben deleted the post but don’t forget he is a known anti-semite who frequently attacked the Jewish Orthodox community and their religion during the COVID scamdemic.

  9. Holy ****! A Tim Dunn post that is coherent and ISN’T all DL fawning! A true Thanksgiving miracle!

  10. @Tim Dunn: Wrong. Lucky says “Given the state of Argentina’s economy, and with so much of the country living in poverty, maybe the airline isn’t worth keeping alive.”

    Also, what is the share of the two private domestic competitors that were started in recent years? Do you even know their names?

  11. @Steve it’s only because AR is a worthless player in SkyTeam. They could leave tomorrow and Delta wouldn’t care.

  12. Yep, it will go bust. Needs to happen. And then, another – one with a viable plan – will rise and fill the empty space.

  13. L3,
    Gary’s HEADLINE, just like Ben’s is over the top. Gary at least gets the gist of the reality right.
    And it is clear that there is very little domestic competition in Argentina but you have to come to the place that you don’t allow unions to hold the entire population hostage because they might have no other choice of airline.
    You tell AR employees that they have one year to make tough choices, remove obstacles to new entry and protections that have benefitted AR at 366 days, and let the fur fly.
    Most of the Argentinian people don’t even make enough to fly anymore.

    and part of the reason why AA was blocked from buying AR years ago is the same reason that the Chilean government blocked the AA/LA joint venture – which led to Latam going w/ DL. There are other sources of capital and partnerships in the world and AA will largely have to go it alone in Latin America because of its size or engage in non-equity partnerships without JVs.

  14. @Tim Dunn: “Milei also spoke glowingly of Guillermo Dietrich , Mauricio Macri’s former Minister of Transportation and who opened the doors of the domestic market to the airlines Flybondi and JetSmart.

    Five years after that opening, the two “low cost” companies with US capital already manage more than 30% of the cabotage market. Even during the four years of the current government, Aerolíneas gave up share of that market in favor of Flybondi and JetSmart.”
    https://www.clarin.com/economia/milei-habla-entregar-aerolineas-argentinas-empleados-suelta-mano_0_9sYt3syOGg.html

    There is real domestic competition.

  15. The newly elected Argentinian president is a self-declared anarcho-capitalist. I take it to mean he’s a hard economic libertarian and game to give Argentina economic shock therapy, but I think he himself is in for a shock even if he goes on a Carlos Menem-like course to again dollarize the economy.

    Aerolineas Argentinas’ way future brighter under this new guy? Doubt it.

  16. Most of those IMF bailouts of Argentina have really been the IMF bailing out banks in North America and Europe.

  17. Plenty of misguided millennials truly believe that bigger government, higher taxes, and larger government subsidies will solve all of the world’s problems. Their ignorant argument is always that it hasn’t worked yet because the government just needs to be bigger. They’ve been fed this drivel their whole lives, and continue to parrot it.

    Lucky is no different.

  18. I hope that AA crashes and burns financially and they have to get rid of all of the employees. The problem is that the government in Argentina is going to long term be a terrible business partner to whomever starts up the new Aerolinas. Zebras don’t change their stripes. I hope Milei runs a very libertarian government. The problem with the global right is their government intervention into people’s lives and bodies but economically what that country needs is a lot less government and a lot less dependence culture.

  19. Those who have been to Argentina know that the national pastime is going on strike and the unions control everything. Genial plan, let them strike now!

  20. I don’t understand why they can’t just sell the airline? Aside from perhaps not having the votes in the parliament.

    I mean: They have airplanes, slots at airports, pilots, and a trained staff. Even if some company took it over and gutted it completely. It’s not worthless, and any profit made by the government is better than 8 billion in losses.

  21. L3,
    the final paragraph of your article is most insightful.
    AR still has 70% share of the market but competitors have come in and those competitors do have access to outside capital.
    If there is a genuine market and companies that can make money more efficiently than AR, those companies will succeed and AR will have to either adapt or die.

  22. He may not be wrong based on the fact that there is no possibility of a 363 asset sale, which would have made it an attractive venue. With all of the assets and cumbered, the new owner is taking on all of the debt from the start. Another sorry example is Olympic Airways, there is no longer a flag, carrier internationally, at least to the United States. It begins to make one wonder with such popular markets. The government truly does not know how to run an airline. An example is the loss of Alitalia. You can replace it with ITA, a new name, but with poor management, it will have the same results. Next month, we’ll see the same loss. Ur, acting again, with Mexicana airlines, explained as being run by the military, and the difference is?

  23. Aerolineas Argentinas could take the US Chapter 11 bankruptcy route that Avianca and SAS and some other foreign operators have followed. But will the Argentine government be willing to let that play out and assume the consequences from such course thereafter? There is a long history of talking one game but eventually ending up playing another anyway.

  24. Have any of you flown in argentina? I have many times including this past summer. All three airlines had huge lines to check in at aep and bariloche Two hours was not enough time to check skis. Aep is beyond capacity. There are too many people and planes for the size of the airport and the days I flew were not a holiday like thanksgiving. I had to wait with a united agent 20 minutes to have my skis cleared at Eziza. Until infrastructure and procedures moves forward ownership or financing of an airline misses the big picture.

  25. It’s Argentina. I mean, c’mon, a total disaster. AR is just the weakest member of the Donner Party in the feeble attempt for the economy to survive. They will all end up eating each other.

  26. Gary, it’s often enjoyable and insightful to read your posts when I agree with you (which is often). But when I don’t agree, it’s particularly clear how you rarely show your work in these posts (I understand you’re a busy man, of course, but I think the examples below show how your piece would have benefited from a couple extra sentences). But seriously: how do you distinguish Milei from MAGA in a substantive way when Trump, Milei, and the repugnant Bolsonaro endorse one another in a disgusting circle jerk? How can you say that Argentines have voted for something new – or something different from a long run of authoritarian personalities and/or governments – when JM allied himself with dictatorship-apologists to shore up his right flank, in a disgusting repudiation of Argentina’s post-1983 consensus? I understand that you have your own priors – libertarian, your employer, etc. – but I fear that you’re braiding kind words for undeserving beneficiaries into your essay here.

    I obviously get that this is in some ways beyond the scope of your piece. And in fact (having among other things having had checked luggage stolen from aerolineas Argentinas during a period of labor unrest) I’d agree with you that the airline has various flaws. But if you’re going to defend such a remarkably problematic figure, you could consider showing your work. Otherwise it looks like you’re spewing talking points or falling into sympathy with wicked charlatans out of a mere identification with named (but imperfectly meant and understood) ideology.

  27. Yes…if Argentina gets rid of its airline it will be the start if un-inflating their currency! Gary Leff is a genius!

  28. Left-leaning Canada privatized air traffic control. The US and every other country should do the same. Government subsidies should be reduced or eliminated wherever possible with all modes of transportation.

  29. Argentina still has too high of a population growth. With current projections it won’t stabilize for another 25 years. Industries that can employ thousands of unskilled people have all moved to the far east, Argentina will be mired in increasing poverty for the foreseeable future no matter what the government does on the economic front.

  30. Mr Dunn, I have always had a mild interest in what you write even though your obvious subjective bias for Delta Airlines frequency interferes with any sort of authenticity in your comments. Your comment about “United employees controlling the means of production” implying that this is what led to the United Airlines bankruptcy is completely false. Despite owning 55 percent of United stock, the employees did not control the company and make the decisions on how it was run. The employees had non voting members on the Board of Directors. That board made decisions in the day to day running of United Airlines that caused the problems leading to the bankruptcy. Perhaps you have conveniently forgotten that Delta Airlines, a company in which the majority of stock was not owned by the employees also filed for bankruptcy in 2005. Have a very pleasant day.

  31. DC not in DC- Global economies would grind to a gaily if drivers were made to directly pay for the roads.

  32. Joe United,
    I am well aware that all of what is now the big 3 and their legacy predecessors filed for chapter 11 – and they also successfully reorganized. US bankruptcy chapter 11 is designed to rehabilitate companies, cut costs, and preserve jobs through exchanging debt for equity in the new company. As much as it has a bad name in the airline industry, chapter 11 has literally saved the US airline industry in ways that other industries including the US steel industry did not do.

    UA’s history includes a greater level of participation in corporate decisions than any other of the big 3 or their predecessors. Still, it was UA pilots that cried in 2000 that they would squeeze the golden goose until it laid its last egg or something similar. UA ended up in the longest and most expensive bankruptcy in airline history.

    WN, despite being heavily unionized, set a new standard in the airline industry for employee engagement and that has fueled their success.
    Although DL historically was heavily committed to employees, they had a couple decades of CEOs that lost that plot until they regained those values, implemented very rich profit sharing, and have brought in some of the best strategic thinkers in the industry as executives. Whether you want to admit it or not, DL’s leadership of the industry in multiple financial and non-financial metrics is attributable to the partnership between DL mgmt and employees that is built on what works – and it doesn’t involve the employees running the company.

    AR is not profitable so profit sharing as DL and WN have succeeded upon is not possible. For-profit companies that are controlled by employees rarely succeed but what Argentina is doing is a the result of a country and company in deep distress and a recognition that the status quo can’t continue. I wish them all well but, for AR to survive, the unions will have to do some deep cost-cutting and I’m not sure they can do it.

  33. Giving the airline to the #1 complainers is a great idea. It will not take long to learn that running a business is a skill and must be run according to good business practices — not what the unions want. I love it. Viva Milei.

  34. Aerolíneas Argentina is easily the worst airline in Latin America. I was a Delta/ST hardcore all ten years I did business in Latin America (cumulatively more than 2 years of time in SA, most in Argentina and Colombia) and even I won’t fly Aerolíneas Argentina.

    The best thing for Argentina would be to shut the airline down. It’s a national vanity project that has never turned a profit and never even managed to reach a mediocre state of quality. A big issue in Argentina is how much of the country relies on government handouts they can’t afford which is why inflation has been out of control for over 20 years.

  35. You’re funny. You talk about the troubles Argentina has because of past authoritarian leaders. And now, they voted in another authoritarian leader.

    Make up your mind.

  36. @Scatto: Don’t rely on CNN for your information. They treat you like you are too lazy/stupid to doublecheck. Milei is a libertarian, the antithesis of an authoritarian.

  37. The jury is out on Milei’s libertarianism. All we have is rhetoric, and not all libertarian. By definition, government is anti-libertarian.

    “The right of the government to exact tribute from the citizens is limited to its actual necessities, and every cent taken from the people beyond that required for their protection by the government is no better than robbery.” — Grover Cleveland, 22nd and 24th president

  38. Very interesting dialogue here, largely from people who understand little about Argentina. I’m a former law clerk in the Defensoria General before the Argentine Supreme Court, I’ve guest lectured at the UBA Law School, and I’m published down there. I visit Argentina at least yearly.

    Milei was certainly not my first choice. (Pato Bullrich was). While Milei campaigned as an outsider, looking at his advisors and cabinet appointments, he has drawn largely from the center-right coalition of Pato Bullrich and Mauricio Macri (the only non-Peronist to serve as President in a generation. (Nestor Kirchner, followed by his murderess widow, Cristina, then Macri, then Kirchner’s former Chief of Staff, Fernandez).

    Dollarization wont happen anytime soon for a reason rarely discussed by the pundits on either side: Argentina lacks the dollar reserves, or anything close to the minimum levels needed, to actually allow that to happen.

    And while yes, there are comparisons to Bolsonaro and tRumpf, the differences are far greater. Milei is actually quite intelligent, and he knows how to make deals. I see him further allying himself with the Juntos por el Cambio (United for Change), focusing on the economic issues – the ones which will have traction with the Argentine people, rather than some of his personally repugnant social preferences – which will never happen because the very rights he purportedly wants to take away are enshrined in Argentine law and he lacks both the ability and the backing to make those kinds of fundamental changes.

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